Hoping for absolutes in a subjective world - Entry 19, 2006

In a perfectly objective world, one would be able to define diagnoses, health status and functionality in absolute terms: afflicted or not, ill or well, able or unable. But in many instances, neither medical science nor human experience allows such straightforward classifications. We may not know what is wrong or what our prognosis might be. Plus, recovery from illness or injury usually includes diversions and setbacks rather than smooth, linear improvement. Thus, there is often no single, clear, identifiable point along the line between ill and well, or able and unable, that we can point to with certainty and say “now, I am better enough” to return to my usual activities.

It is within this realm of uncertainty that companies apply health benefits policies. Disability insurance covers salary during the time that a person is ill and unable to work. This policy sounds simple enough, yet, the degree of subjectivity in both illness and ability allow different interpretations of what constitutes well enough or able enough. The degree of subjectivity also allows more opportunity for factors other than health and work to influence return-to-work decisions. As an example, a worker who loves her job may feel ready sooner than a person who hates her job. A worker whose family responsibilities are overwhelming may take more time than a worker with strong family support.

In this entry, we will look at whether financial incentives affect the speed at which workers return from episodes of illness. We analyzed data from over 25,000 claims for short term disability (STD) insurance coverage. These claims came from multiple companies with a variety of jobs and STD policy rules. This same population was used in another entry to demonstrate that policies that covered a greater portion of salary during a disability absence resulted in a higher rate of claims .

In this analysis, we tested whether, after filing a disability claim, the duration of the claim was affected by the percent of salary paid to the employee during the claim. A type of inquiry called “survival analysis” was performed, controlling for differences in age, gender and other demographic factors. This analysis essentially measures how long it takes for a population of people to reach a specific outcome—in this case, how long before they have returned to work.
What we see in the graph is that salary coverage influenced the speed of return to work. Generally, workers receiving a higher portion of pay (farthest right in blue) remained out of work longer than workers receiving a lower portion of pay (farthest left in red). In the group receiving between 25% and 50% of regular salary, we see that 50 days after the claim began one quarter of workers had not yet returned to work. For those receiving more than 75% of pay during their illness, the same portion of workers remained on disability after 75 days.

Subjective readiness is sensitive to financial incentives
It should not surprise us that workers who share a greater portion of the cost of lost time assessed themselves as ready, or able enough, sooner than those who sacrificed a smaller portion of their salaries. It is human nature to make decisions within the full context of benefits and costs. Given that absolutes are rare in illness and functionality, each person responds subjectively to the set of circumstances he or she faces, including financial incentives.

We may wish every illness could be identified as clearly as a clean break on an x-ray, followed by an equally obvious picture confirming complete recuperation. But such is not the case for most issues. Knowing that workers will adjust their return in response to financial incentives, policies should reflect a conscious choice to balance support with shared responsibility for recovery. Paying 100% of salary reduces the incentive to become “ready.” The smaller the portion of regular salary paid during a medical absence, the more incentive a worker will have to become ready sooner.